Alberta manufacturers look to go big or suffer the consequences as owners go offshore

Joseph Caouette

As the president and chief executive officer of NC Services Group Ltd., Ted Redmond spends much of his time tackling the tricky logistics of transporting and lifting modules for oilsands projects. However, long before he took the helm of the heavy-haul company, he was a management consultant working with appliance giant Whirlpool Corporation.

Today’s module manufacturers are likely losing sleep over the prospect that oilsands project owners will look to places like South Korea for cheap module production, forsaking the local industry. It’s similar to the situation faced by North American appliance makers, who were once haunted by their own nightmarish visions of Asian toasters swarming the continent and swamping domestic manufacturers.

At first, Asian appliance makers began small and simple with products like air conditioners and microwaves. “But over time, as they got better and better, they started shipping larger and larger appliances,” Redmond says. Decades later, these companies—Samsung, Hitachi and LG, to name a few—now compete head-to-head with venerable North American institutions like Whirlpool.

“But is Whirlpool out of business?” Redmond says. “No, they’re still making appliances, and they’re competing with the Koreans.”

He acknowledges the analogy is not perfect, but it still contains a valuable lesson for the local industry. “In Alberta, if you’ve got 30 mod yards, you’re probably going to end up with five really good ones, or 20 years from now, one or two really good ones,” he says.

Redmond was one of a number of speakers attending the Modular and Offsite Construction Summit held in Edmonton, perfectly timed to coincide with one of the first major snowstorms of the season in early November. Commuters may have been unhappy to see over a foot of snow blanket the city during the day, but it would have been difficult to find a better reminder of the virtues of modular construction in Alberta’s harsh climate. While precise statistics are unavailable, most would agree productivity notably improves when the entire workforce isn’t buried under a layer of snow.

Such benefits have driven the rise of module manufacturing in the oilsands over the past three decades. In the early 1980s, the industry began with simple pipe racks, moving less than 10 per cent of the above-ground labour hours off site. Over the years, that has grown to encompass more complex process modules, moving anywhere between 25 and 40 per cent of above-ground labour into the mod yards, according to Peter Stalenhoef, chief operating officer, heavy industrial, at PCL Constructors Inc.

Technological advances will push that figure much higher in the coming years, Stalenhoef believes. Large buildings like water treatment plants may be built almost entirely off site, leaving only basic assembly work to the field crew, while high-voltage cable connectors will allow for modules that are operation-ready before even leaving the manufacturer. “We’re already seeing examples of that where systems can be fully installed and tested in the yard,” he says.

Yet for all that excitement over the future, the mood inside the conference was often as grim as the weather outside, with many echoing Redmond’s remarks about the rise of offshore manufacturers. However, none were more determined to defend Alberta’s industry than Hal Williams, vice-president of operations for KBR Industrial.

As someone who has been with the industry since its infancy, Williams is well aware of how much change these companies have already weathered. “There was a time when we tried to sell modularization by saying we build a better module than the other guy,” he explains. “We still do, but it’s harder to sell. It’s getting fast to where it is a commodity.”

With that change comes a whole new series of pitfalls. As modules become commodified, they slip down the chain of command, with senior buyers passing off responsibility to junior buyers, who treat the purchase no differently than buying office supplies, Williams says.

Standardized pricing becomes a must in this environment. Otherwise, the industry will find itself at the mercy of uninformed buyers, he warns. Williams has experienced this problem first-hand in his recent dealings with a Calgary engineering firm—he politely declines to name names—where the person in charge of the bidding process showed little knowledge of the module industry.

“I swear up and down the person who wrote this package has never seen a module in their life,” he says. “This person is going to end up with 16 million Excel spreadsheets all over trying to evaluate [the bids]. At the end of the day, they might as well put these bids on the wall and throw a dart because the analysis is going to be just as relevant.”

Commodifying modules can bring as many risks as it does benefits. If the process becomes standardized and simplified, then it also becomes easier to ship overseas, much like other forms of manufacturing—and everyone remembers how that story turned out.

“The next question is what happened to manufacturing in North America?” Williams asks. “Well, we all know what happened to manufacturing in North America. It’s all offshore now.”

Not that this route is without its own speed bumps. One of the recurring jokes of the summit was the project that dare not speak its name—Imperial Oil Limited’s ill-fated Kearl oilsands modules. Attendees delighted in referencing the project, although few dared to invoke it directly, either out of superstition or simple courtesy.

Manufactured in South Korea, a number of Kearl modules faced numerous setbacks as the company struggled to gain clearance to transport them through Idaho and Montana. Imperial Oil was finally forced to re-sequence its construction plans and even cut down some of the mega-modules in order to bring them across the border—at no small cost to the company, it should be added.

Despite these difficulties, Stalenhoef is prepared for the manufacture of smaller modules to move offshore. “Obviously, the full benefit of Alberta-size modules won’t be achieved with this approach, so we’ll have to see how it all plays out,” he admits. “But I think we’re going to see some of those experiments occurring.”

The solution for Alberta businesses may be to go where the offshore manufacturers can’t follow, by producing massive modules that can’t be easily or affordably shipped over the ocean. To that end, PCL is pushing to increase size limits on Alberta’s heavy-load corridors.

“We, along with Fluor [Corporation] and Mammoet, have been working with a government taskforce advocating increasing module shipping weights from the current 345,000-pound limit to 500,000 pounds,” Stalenhoef says. “Of course, this will allow for greater work in module yards, and I can tell you this is a case where bigger is definitely better.”

It’s one option for Alberta’s module industry, but many are already predicting business could be lost to overseas firms.

During Williams’ talk, one audience member suggests some products will be lost to offshore markets, but there will always be room for Alberta businesses as well. Surely there are value-added services that Alberta’s sophisticated module manufacturers can focus on?

Williams will have none of it. He wants the whole pie, or to return to Redmond’s earlier appliance analogy, the entire kitchen suite, from toasters and microwaves all the way up to fridges and ovens.

“I don’t want to give up anything,” he says. “Both as a module fabricator and as an Albertan, I don’t want any work to leave this province.”